H.R. Bill 436: The Storm That Could Destroy Your Estate Plan

Now is the time to proactively implement your estate plan! Why now you ask? Our answer is this....would you consider a potential increase in the value of assets that you intend to transfer to your next generation of up to 40% or more to be important to your estate plan?

Interested? Read on.

An integral part of many estate plans is the use of the family limited partnership (FLP) or a limited liability company (LLC) to transfer wealth to the next generation. Properly documented, organized, and operated, these vehicles, when supported by a professionally prepared independent business valuation, can provide significant valuation discounts that can be utilized in leveraging the annual gift exclusion ($13,000 per donee in 2009) and the lifetime application exemption ($1,000,000 in 2009) in the transfer of appreciating assets on a tax advantaged basis. Typically, these entities hold non-business assets, such as real estate and marketable securities.

Now there is a storm on the horizon.

On January 9, 2009, Bill 436 was introduced by Representative Earl Pomeroy (D-ND). If passed, this Bill would, among other things:

• Eliminate minority and marketability discounts for "non-business assets".
• Eliminate minority discounts on the transfer of "non-actively traded entity" ownership interests between family members.

The Bill defines "non-business assets" as "any asset which is not used in the active conduct of one or more trades or businesses" and provides examples and exceptions to the definition.

The Bill does not define "non-actively traded entity".

Currently, this Bill sits in the House Committee on Ways and Means and if passed would apply to transfers after the date of enactment.

If the Bill passes and becomes law, valuation discounts for transfers of non-business assets held by an applicable entity would not be allowed. Many estate plans could be severely impacted.  Please contact T. Eric Blocher at eblocher@macpas.com for insight on the Bill, a list of what the Bill considers to be non-business assets, or to discuss what proactive steps you can take to reduce the potential impact of the Bill on your estate plan.